As Vermont’s official 529 college savings plan, VHEIP is the only 529 plan that qualifies for a Vermont state income tax credit. It is the responsibility of the account owner and any contributor to VHEIP to maintain records necessary to respond to any questions from the Internal Revenue Service or the Vermont Department of Taxes related to contributions.

• A state income tax credit of 10% of the first $2,500 contributed to VHEIP per beneficiary per tax year is available to any Vermont taxpayer (or, in the case of a married couple filing jointly, 10% of the first $5,000 contributed per beneficiary) – a tax credit worth up to $250 per beneficiary ($500 per beneficiary for married couples filing jointly). Gifts made by a Vermont taxpayer to any VHEIP account are also eligible for the credit.
• Rollovers from another state’s 529 plan into VHEIP are also eligible for the tax credit on the contributions portion of the rollover (not on the earnings portion). The funds must remain in VHEIP for the remainder of the tax year in order to claim the tax credit.

For details and examples, including information on non-qualified withdrawals, see the Vermont Department of Taxes Technical Bulletin (TB-66). Learn how to claim the Vermont income tax credit.

Federal tax reform info: The Internal Revenue Code includes provisions related to 529 plan accounts. See the Disclosure Booklet for details. In 2022, Vermont tax law was updated to add two new allowable uses of funds withdrawn from a VT529 account without adverse impact on the Vermont income tax credit: (1) for apprenticeship programs registered and certified with the U.S. Secretary of Labor and (2) for repayment of up to $10,000 per the lifetime of a beneficiary in student loans for post-secondary education at an approved postsecondary education institution. (See the VHEIP tax credit information on the VT Tax website.) Vermont tax law currently does not treat a rollover to a Roth IRA or a withdrawal used for K through 12 education expenses as an allowable use. Please consult your tax advisor for how this may affect your personal Vermont tax situation.

• Tax-free earnings. All contributions are after-tax. Any earnings are free of federal and state taxes, except in cases of a non-qualified withdrawal.
• Tax-free withdrawals. Withdrawals used for qualified higher education expenses – including eligible undergraduate, graduate, trade, technical, or non-degree study – are exempt from federal and state tax.
• No income limitations. Tax benefits are available regardless of income. There are also no income limitations on a person’s ability to open or contribute to a VHEIP account.
• Federal estate and gift tax benefits.Contributions to VHEIP may reduce the taxable value of your estate. Contributions to the plan, together with all other gifts from the account owner or third-party contributors to the beneficiary, may qualify for an annual federal gift tax exclusion of $18,000 per donor ($36,000 for married contributors), per beneficiary. If an account owner’s contribution to a VHEIP account for a beneficiary in a single year exceeds $18,000 ($36,000 for married contributors), the account owner may elect to treat up to $75,000 of the contributions, or $150,000 for joint filers, as having been made over a period of up to five years for federal gift tax exclusion. This means that an account owner (or a third-party contributor) may contribute up to $75,000 in a single year to an account without the contribution being considered a taxable gift, provided that the contributor makes no other gifts to the beneficiary in the same year in which the contribution is made and in any of the succeeding four calendar years. The contributor must make this election on his or her federal gift tax return by filing IRS Form 709. Consult your tax advisor.
• More on tax benefits for education. IRS Publication 970, Tax Benefits for Education, is a useful resource for individual taxpayers who have questions about 529 plans, referred to as Qualified Tuition Programs (QTPs) in the IRS code. See chapter 8 of the document for specifics and tips.

Federal tax reform info: The Internal Revenue Code includes provisions related to 529 plan accounts. See the Disclosure Booklet for details. In 2022, Vermont tax law was updated to add two new allowable uses of funds withdrawn from a VT529 account without adverse impact on the Vermont income tax credit: (1) for apprenticeship programs registered and certified with the U.S. Secretary of Labor and (2) for repayment of up to $10,000 per the lifetime of a beneficiary in student loans for post-secondary education at an approved postsecondary education institution. (See the VHEIP tax credit information on the VT Tax website.) Vermont tax law currently does not treat a rollover to a Roth IRA or a withdrawal used for K through 12 education expenses as an allowable use. Please consult your tax advisor for how this may affect your personal Vermont tax situation.

Minimum contribution:

• $25 minimum for automatic contributions (you choose the schedule — monthly, quarterly, yearly, and more).
• $25 minimum for one-time contributions by check, electronic funds transfer (EFT), or recurring ACH.
• $15 minimum per pay period for payroll deduction contributions.

• No limit on contributions per beneficiary as long as the total balance of all accounts for that beneficiary does not exceed $550,000.
• Accounts may continue to accrue earnings even if they have reached the maximum account contribution limit, but no more contributions will be accepted.

VHEIP has low plan fees.

• No sales charges, no enrollment fees
• 0.39% annual asset-based program management fee to cover the cost of investment management and administration, including all underlying fund fees. For details, please see fees and expenses.

• Anyone can open an account. Any individual — parent, grandparent, relative, and friend — who is a U.S. citizen or resident alien and has a Social Security Number or Tax Identification Number may open a VHEIP account and contribute to a beneficiary. You can even open an account for yourself. Vermont state residency is not required. A trust, estate, corporation, non-profit, or government entity can also open an account and contribute on behalf of a beneficiary.
• Many ways to contribute. You may set up automatic contributions from your bank account, sign up for payroll deduction with your employer, or make contributions online or by mail whenever you want to. You can also roll over funds from another state’s 529 program or from another college savings investment such as a Coverdell ESA or UGMA/UTMA.
• Choice of investment options, including age-based, diversified equity, equity index, balanced, fixed-income, and the Principal Plus Interest Option. See Investment Options & Performance for more info.
• Rebalance assets up to 2x per year. You may change investment options for money you have already invested into each VHEIP account two (2) times per calendar year, on whatever dates you choose. At any time you may change the investment options into which future contributions are deposited.
• No time limit for using funds. The money you accumulate can be used for a beneficiary’s qualified education expenses for undergraduate, graduate, and non-degree education any time during the account owner’s lifetime. You can name a contingent account owner, who will become the account owner if you die.
• Money can be transferred to another beneficiary. You may change the beneficiary at any time to another member of the previous beneficiary’s family. The account owner retains control over the account even when beneficiaries are changed.
• Ease of withdrawals. To make a withdrawal, the account owner simply requests the amount needed and selects where to have the funds sent: to the college, program, or beneficiary via check, or to the account owner via check or electronic deposit.
• Money can be withdrawn for non-education expenses. You control all use of the funds. However, if you make a non-qualified withdrawal, for any use other than paying qualified education expenses, you will pay state and federal income tax on the earnings portion of the withdrawal, plus a 10% penalty, and you must repay any Vermont state tax credit that was given for the contributions portion of the non-qualified withdrawal.
• Money can be withdrawn to repay student loans. Up to $10,000 can be used per the lifetime of a beneficiary to repay student loans for post-secondary education.

Federal tax reform info: The Internal Revenue Code includes provisions related to 529 plan accounts. See the Disclosure Booklet for details. In 2022, Vermont tax law was updated to add two new allowable uses of funds withdrawn from a VT529 account without adverse impact on the Vermont income tax credit: (1) for apprenticeship programs registered and certified with the U.S. Secretary of Labor and (2) for repayment of up to $10,000 per the lifetime of a beneficiary in student loans for post-secondary education at an approved postsecondary education institution. (See the VHEIP tax credit information on the VT Tax website.) Vermont tax law currently does not treat a rollover to a Roth IRA or a withdrawal used for K through 12 education expenses as an allowable use. Please consult your tax advisor for how this may affect your personal Vermont tax situation.

• Funds in VHEIP are considered a parent asset, rather than a student asset, so have less impact on financial aid. Federal financial aid formulas dedicate a fairly small portion of the parents’ assets toward the student’s college costs — a maximum of 5.64% per year. A student’s assets, in contrast, are typically assessed at a rate of 20% in the financial aid formula for higher education. Assets in a 529 plan in which a parent or a student is the account owner are reported on the Free Application for Federal Student Aid (FAFSA) as an asset of the parent, and are thus assessed at the parent’s rate rather than at the student’s rate.

• VHEIP withdrawals are treated favorably. When funds are withdrawn by the parent account owner to pay for the beneficiary student’s qualified expenses for college or other training, the withdrawal is not counted as income for financial aid purposes.

• Savings plans reduce need for loans. Student loans often make up the bulk of college financial aid packages, and interest on the loans can significantly increase the long-term cost of paying for education. A 529 plan, on the other hand, can grow as you contribute, so saving helps reduce the amount a parent or student beneficiary may need to borrow to help pay for college expenses.

• Funds in the account may be used at any eligible higher educational institution in the U.S. and abroad, whether your beneficiary decides to go to an in-state or out-of-state public or private college or university, trade, technical, or graduate school.
• Money can be used for a variety of qualified education expenses based on the program’s cost of attendance. These include tuition, fees, books, required supplies and equipment, on-campus room and board costs or off-campus costs up to the standard amount for living on campus, and certain education expenses for students with special needs.

Federal tax reform info: The Internal Revenue Code includes provisions related to 529 plan accounts. See the Disclosure Booklet for details. In 2022, Vermont tax law was updated to add two new allowable uses of funds withdrawn from a VT529 account without adverse impact on the Vermont income tax credit: (1) for apprenticeship programs registered and certified with the U.S. Secretary of Labor and (2) for repayment of up to $10,000 per the lifetime of a beneficiary in student loans for post-secondary education at an approved postsecondary education institution. (See the VHEIP tax credit information on the VT Tax website.) Vermont tax law currently does not treat a rollover to a Roth IRA or a withdrawal used for K through 12 education expenses as an allowable use. Please consult your tax advisor for how this may affect your personal Vermont tax situation.